Is the G20 the right place to resolve the Ukraine crisis?

East Asia Forum - 4 hours 20 min ago

Author: W. Pal Sidhu, Brookings

The Ukrainian crisis — which has pitted Russia against other members of the G20, led by the United States — has cast an ominous shadow over the Brisbane summit in November 2014. The unfolding tragedy in Ukraine has the potential in the short term to dent the ambitious G20 agenda and in the long term to wreck the group itself. How it is resolved will have significant implications for the G20 and other potential international disputes.

The Ukrainian crisis does not herald the beginning of a new Cold War but is instead a leftover from the unresolved conclusion of the original one. At its most basic, however, the crisis is about the clash of two contradictory trends. One is the desire of major and emerging powers to safeguard their interests in their own immediate and extended geographic neighbourhoods. The other is the post-Cold War international norm against unilateral use of force and redrawing borders through military action. Thus there is broad international consensus that Russia’s recent annexation of Crimea, though perhaps justified in order to protect Russian interests in the region, violated the post-Cold War norm of settling territorial disputes without the use of force.

This crisis may impact the summit in three ways.

One particularly negative scenario would be that Australia, the 2014 host, decides to ban Russian president Vladimir Putin from attending the summit and moves are made to eject Russia from the grouping, just as Moscow was expelled from the G8. Apart from challenging the consensus-based decision making norm within the G20, this move would seem particularly ill-advised: it could set a precedent for future summit hosts to be equally selective in their invitations. Besides, the G20 agenda is challenging enough even with all members present and engaged. It would be almost impossible to implement without the presence of Russia. And preventing Russia’s participation will not resolve the Ukrainian crisis — it might even exacerbate it. Having Russia within the grouping, however abhorrent, is perhaps better than trying to deal without it outside.

Even with Russia present at the summit, there is a chance that deliberations may be hijacked by the spat over Ukraine and other international disagreements where Moscow and Washington are on opposing sides as well as the US-led sanctions against Russia. Such a dynamic was evident at the 2013 St Petersburg summit, which was dominated by the crisis in Syria and will be remembered for Putin’s tirade about possible moves by the United States and its allies to intervene militarily against Moscow’s staunch ally in the Middle East. The Brisbane summit is likely to be even tenser given the sanctions imposed by G20 members against Russia. The challenge for Australia will be to ensure that the sanctions against Russia, the Ukraine crisis, and other international imbroglios, do not detract from the primary objective of the summit, which is to provide strategic priority for growth, financial rebalancing and emerging economies, investment and infrastructure, and employment and labour mobility.

More optimistically, the presence of Putin might also offer an opportunity for him and other leaders to try and seek a resolution of the Ukrainian crisis on the sidelines of the summit. The joint agreement between Russia and the US to dismantle Syria’s chemical weapons arsenal following the St Petersburg summit is an example of how this might play out. But, for this to work, Australia and other countries — perhaps one or two BRICS members, like India, which are not seen as hostile to Russia — would have to work behind the scenes before the summit to explore possible solutions.

The resolution of the Ukrainian crisis might well be beyond the scope of the Brisbane summit. But the G20, which was after all established to seek a collective resolution to crises in one or two regions of the world, is well suited to reinforce two crucial global norms. The first is the need to seek diplomatic solutions to disputes through negotiations and engagement; the second is the need to uphold the international practice of not redrawing borders through the unilateral use of force.

If the G20 can reinforce these principles, it would go a long way to preventing a future crisis like that in Ukraine and would contribute to ensuring an international scenario conducive for the G20’s primary objective to be achieved.

Pal Sidhu is Senior Fellow, Foreign Policy, Brookings Institution and Brookings India Centre.

Categories: Forum

Myanmar cannot afford to pass up reform

East Asia Forum - 16 hours 20 min ago

Author: Cyn-Young Park, ADB

Myanmar has embraced greater economic openness since it emerged from decades of economic and political isolation. Reforms so far and re-engagement with the international community have successfully stimulated growth. The economy has sustained GDP growth of more than 7 per cent for two years running, bolstered by rising exports and foreign investment, according to the latest IMF estimates.

The most important driver for growth has been offshore natural gas production for export coming on stream. Unlocking its future growth potential will critically depend on how the country broadens its industrial base and develops value-added linkages to regional and global production networks — which requires further acceleration of broad-based reforms and economic transformation.

Many developing countries in Asia have relied on outward-oriented growth strategies by focusing on trade and FDI to boost demand for competitive products, allowing for cheaper and greater varieties of production inputs, integrating with global and regional production networks, and fostering technology transfer and productivity growth. With the lifting of sanctions and outward-oriented reform, a great opportunity awaits Myanmar. It needs to seize the opportunity to secure access to regional and global markets, technology and expertise in finance and management.

ASEAN can provide an important entry point for Myanmar’s integration into the regional and global production networks, as well as global value chains. The benefits from a single market of ASEAN economies by 2015 under the ASEAN Economic Community (AEC) could be immense, in terms of access to greater regional markets, attracting regional FDI, and benefiting from skilled labour from other ASEAN countries. Myanmar is committed to implementing all undertakings by 2020 and most commitments under the AEC Blueprint are expected to be met by 2018. However, the underdeveloped financial system, inadequate infrastructure, weak institutions, and lack of awareness of AEC programs and implementation remain major obstacles that can only be overcome over the medium term.

Tapping into the potential benefits of regional integration will depend largely on how the country addresses its poor infrastructure and connectivity, strengthens its industrial and commercial base and enhances its institutional and human resource capacity.

Myanmar is ranked low in the overall logistics performance index by the latest World Bank Logistics Performance Survey— 145th out of 160 countries — and quality of infrastructure ranks 137th. Considerable infrastructure gaps exist. A new ADB study estimates the country needs to invest as much as US$80 billion to address the major infrastructure gaps by 2030. Immediate policy attention and investment are called for especially in the areas of improving transport networks; provision of adequate, reliable, and affordable energy; and building basic information and communication technology infrastructure.

Attention to transport infrastructure and transit corridors is particularly important for the success of economic integration with regional and global communities. High transport costs undermine the potential gains from trade liberalisation and can negate the price effects of reductions in tariffs and non-trade barriers. The missing links and bottlenecks in transportation infrastructure are serious problems, preventing the country from effectively integrating itself with the regional economy and exploiting its advantage as a natural bridge between South and Southeast Asia. Here, the first step would be for Myanmar to play its part in improving physical connectivity in ASEAN —to reduce trade costs and enhance trade competitiveness, as well as to improve mobility.

Another related issue is trade facilitation. Steps to enhance trade facilitation include streamlining document requirements for imports and exports, reducing the number of border agencies, removing hidden trade barriers including non-tariff barriers and behind-the-border practices, and enhancing governance and transparency to avoid corruption and unofficial payments.

There is great scope for Myanmar to introduce and implement policies that can unleash the full potential of industrialisation. The first step is to promote trade-oriented labour intensive manufacturing industries, through leveraging special economic zones and attracting FDI in areas of strategic importance. In particular, the government needs to coordinate and calibrate its policies for business incentives, clear property rights and harmonious labour relations in order to draw more FDI into key sectors that can spearhead long-term growth.

Much progress has been made to improve the investment climate by removing unnecessary hurdles to business and trade, providing legal foundation for foreign investment, improving essential public services, and addressing governance and corruption issues. But much more needs to be done. Building on the earlier reform momentum, the second wave of reforms should focus on strengthening private sector capacity in order to unleash the potential of trade and FDI. Such reforms should include further improving the regulatory environment; investing in physical and social infrastructure; building human capital, with particular attention to upgrading the skills of the young; and strengthening and developing the banking sector and financial markets.

Finally, investment in human capital development is crucial to allow the country to attract and retain more of the benefits from FDI. Trade and FDI liberalisation will help improve the utilisation of factor endowments and productivity, leading to high growth and sustained poverty reduction. But it is human resource capacity that will ultimately enable the country to unleash the potential of trade and FDI and their attendant benefits. The World Economic Forum’s Global Competitiveness Survey reveals Myanmar’s poor ranking on business environment and attributes this to problems in access to financing, policy instability, corruption and an inadequately educated workforce.

Past neglect and underinvestment in education has left a huge void in Myanmar’s skilled workforce, and increasing the skills of its labour force is a huge task. Along with the short-term measures to support skills upgrading and vocational training, a comprehensive reform of the education sector at all levels is needed to support higher medium- and long-term growth.

Cyn-Young Park is Assistant Chief Economist and Director of the Economic Analysis and Operations Support Division in the Economics Research Department of the Asian Development Bank.

Categories: Forum

Nationalism, nuclear power and Japans fragile media opposition

East Asia Forum - Tue, 09/30/2014 - 17:00

Author: Tobias Weiss, Zurich University

In the wake of the Fukushima nuclear accident in 2011, public support for the Democratic Party of Japan vanished. Prime Minister Shinzo Abe’s Liberal Democratic Party won a majority in both houses of the Diet. In the absence of an effective political opposition, the liberal media have sought to fulfil this function.

Japan’s big media companies were criticised after the Fukushima incident for underreporting the risks associated with nuclear power. This triggered a surge in investigative journalism. Asahi Shimbun — the leading liberal newspaper with a readership of around eight million — in particular put pressure on the government and the nuclear industry. After Abe’s election, Asahi criticised him not just on nuclear power but on other aspects of his conservative agenda like the Special Secrecy Law, which many believe is an attack on press freedom.

But the newspaper world has become polarised into two ideological camps: the pro-nuclear camp led by Yomiuri Shimbun and the right-wing Sankei Shimbun, and the anti-nuclear camp of Asahi, the Mainichi Shimbun and the Tokyo-Chunichi group.

Asahi came under heavy fire from its right-wing competitors for its criticism of Abe and failure to defend the ‘national interest’. Abe is under pressure due to rising doubts about his economic strategy ‘Abenomics’ and in need of good news on the reinvestigation of Japanese abduction victims. But a string of allegations against Asahi has lessened the pressure on Abe and threatened the critical role of the media.

Sankei has launched a campaign against Asahi’s reporting on the ‘comfort women’ issue, which led the newspaper to re-examine an older series of articles on the topic. It was revealed that one source for this series, a former soldier known by the pen name Seiji Yoshida, had made false testimonies. Asahi had half-heartedly re-evaluated the articles after doubts about Yoshida’s statements arose. Criticism of Asahi intensified after it withdrew the articles but stuck to its critical stance against Imperial Japan’s system of wartime military brothels.

Sankei’s campaign was flanked by attacks from right-wing internet users and weekly journals rampant with nationalism. The magazine Shūkan Shinchō claimed Asahi made ‘100 million Japanese the victims of fake reporting’. Yomiuri joined in, claiming Asahi had ‘burdened postwar Japan with a negative legacy in an unprecedented manner’. Yomiuri, Japan’s largest newspaper, seems to have seen this as a chance to attract nationalistic customers, after losing over 600,000 of its 10 million readers in just half a year. Abe himself also claimed Asahi had ‘damaged Japan’s good name’.

Further revelations have weakened Asahi’s position. A popular media commentator made public that he was not allowed to criticise, in his own Asahi column, what he considered the paper’s lack of an apology regarding its reporting of Yoshida’s false testimonies on ‘comfort women’ and announced he would cancel his column in protest. Under pressure, Asahi caved and printed the critical column. Still, Sankei started printing calls for the dismantling of Asahi.

Another defeat for Asahi followed. After obtaining a copy of testimony given before a closed government panel by the manager of the Fukushima Daiichi nuclear power plant Masao Yoshida, Asahi reported that during the accident the majority of workers violated his orders and fled to another plant 10 kilometres away. However, Sankei revealed it had also obtained the testimony and challenged the notion that the manager’s orders were disobeyed. It accused Asahi of ‘making the world believe that Japanese ran away from the accident’.

Asahi’s CEO apologised and announced it would withdraw the article, saying the order had not been circulated. Rather, the workers left on the orders of TEPCO staff subordinate to the manager who had interpreted his statements as an evacuation order. Asahi’s CEO subsequently also announced he would reform the newspaper, punish the journalists involved and possibly step down after handling the scandal.

While Asahi has undoubtedly made errors, neither incident requires a complete re-evaluation of the issues at stake. In spite of Seiji Yoshida’s false testimony, the evidence is unequivocal that among the women sent to Japanese military brothels there were large numbers of Koreans and many were recruited forcibly. Equally, even if orders may not have been directly disobeyed, it doesn’t change the fact that large sections of the power plant’s staff had left the facility and the management considered it dangerous to stay.

So what is motivating the Asahi bashing?

Right-wing media groups, such as Sankei, believe the media must defend the ‘national interest’.

The Abe administration appears to share this view. Abe appointed Katsuto Momii as director of NHK, Japan’s public broadcaster, who remarked that public broadcasting should not act against the government. Abe also appointed five members to NHK’s twelve-member board. One of them — a right wing novellist — has participated in the Asahi bashing. Abe himself has, in his time as deputy cabinet secretary in 2001, been at the centre of a scandal concerning press freedom at NHK. He met with managers of the channel, ‘expressing his views on the comfort women issue’, the day before the airing of a critical documentary. The managers ordered the production staff to change the content. This episode took place weeks before the NHK-budget was to be decided in the parliament and it led the Japanese Broadcasting Ethics Organisation to call for more distance between production and politics at NHK.

Since 2012, Japan has dropped 31 places on the index of press freedom and now ranks 53rd out of 177 countries. The real issue underpinning Japan’s media wars seems to be whether news media that criticises the government can publish freely in an increasingly nationalistic climate. The answer remains to be seen.

Tobias Weiss is a PhD candidate at Zurich University, Switzerland. His research focuses on Japanese media and nuclear power.

Categories: Forum

Aquino’s reformism hits a dead end

East Asia Forum - Tue, 09/30/2014 - 05:00

Author: Mark R. Thompson, City University of Hong Kong

Unlike his scandal-plagued predecessor Gloria Macapagal-Arroyo — who left office as the most unpopular post-Marcos president — it has long seemed that Benigno S. ‘Noynoy’ Aquino III, could do no wrong. Aquino promised to take the ‘straight path’ (matuwid na daan) to clean up corruption. This, he said, would also eradicate poverty.

Aquino’s reforms were, at first, very successful. Economic growth accelerated to the highest among ASEAN nations. Corrupt politicians were held accountable — Arroyo was charged with plunder while Aquino’s congressional allies removed Supreme Court Chief Justice Renato Corona, a ‘midnight’ Arroyo appointee accused of obstructing Aquino’s anti-corruption drive. More people paid their taxes after a Bureau of Internal Revenue crackdown. And pro-administration candidates dominated mid-term congressional elections in 2013.

Credit rating agencies such as Fitch gave Aquino’s administration a vote of confidence as well, upping the country to investment grade. The Philippines steadily improved its ranking in Transparency International’s Corruption Perception Index, moving from 129th of 177 countries in 2011 to 105th in 2012 and to 94th last year. Aquino seemed to be moving fast along a ‘straight path’.

But over the past 12 months Aquino’s reform drive has run into a dead end.

In 2013, there were revelations that corrupt legislators employed fake non-governmental organisations (NGOs) set up by businesswoman Janet Lim-Napoles and others to divert pork barrel funds into their own pockets. After initial hesitation, Aquino — seeking to limit the outcry from his middle class base — agreed to abolish the Priority Development Assistance Fund (PDAF) that had been used to pay the fake NGOs.

Aquino was not initially blamed for this pork barrel scam — the president-appointed ombudsman indicted three opposition senators. But Aquino was accused of shielding his allies in Congress by limiting the Commission on Audit investigations of the scandal to before he took office in 2010. Aquino’s opponents also claimed that money had flowed to legislators to vote for Corona’s impeachment, trial and conviction.

In the absence of a strong party system, patronage has long been the only way for a president to ‘get things done’ in the Philippines. Fidel V. Ramos, generally considered the most successful reformist president before Aquino, was particularly adept at pork barrel spending to push through reforms.

Aquino’s artful concealment of the necessity for presidential pork was ‘outed’ when the Supreme Court ruled unanimously on 1 July this year that major components of the Disbursement Acceleration Program (DAP) — which Aquino defended as a necessary instrument to quickly disperse unspent funds from other programs to higher priority projects — were unconstitutional.

Aquino lashed out at the Supreme Court in his penultimate State of the Union address, leading to fears that he would try to impeach its members (including his newly appointed chief justice) or slash its budget. Aquino also hinted that he might push for constitutional change to allow him to run for a second term, raising old fears of Marcos-style continuismo (continuing indefinitely in office).

But his congressional allies abandoned him both on his challenge to the Supreme Court and his call for constitutional change. His poll ratings have dipped sharply and Aquino — accustomed to high levels of popularity — now faces political isolation as a lame duck president.

Philippine politics appears to have gone through yet another case of a popular leader brought low by cascading scandals and failed promises. Aquino himself admitted his pledge to clean up the Bureau of Customs had failed miserably and recently appointed a new Custom’s chief to try again.

But in Aquino’s case, the fall from grace is particularly striking given his narrative of ‘good governance’. Graft remains, and Aquino’s family continues to resist the court-ordered land redistribution of his family’s huge plantation Hacienda Luisita.

Growth in the Philippines remains profoundly unequal.

Under Aquino, the Philippines has experienced impressive macro-economic growth, fuelled by remittances from the 10 per cent of the country’s population working abroad — often in menial jobs — and business process-outsourcing, primarily call centres that are largely foreign owned and can easily be moved to another country. While the service sector has boomed, agriculture — the economy’s biggest sector — has performed dismally.

Last year, economist Cielito Habito calculated that the growth in the aggregate wealth of the country’s 40 richest families in 2011 was equivalent to over three quarters of the increase in the country’s GDP that year . Unemployment, already the highest in ASEAN, has risen during much of Aquino’s presidency, while poverty has hardly dipped. Self-reported poverty has actually risen. Aquino has poured money into a Brazilian-style conditional cash transfer scheme that has met with some success but critics say he should concentrate instead on universal social services and creating jobs. The administration’s list of major completed infrastructural projects is also lean.

Vice President Jejomar Binay (who defeated Aquino’s vice presidential bet in 2010; presidential and vice-presidential candidates are elected separately in the Philippines) is widely seen as a leading contender in the 2016 presidential election — although his bid has been tarnished by a plunder case (for a supposedly overpriced parking garage said to involve payoffs) recently filed against him, which his supporters claim was instigated by Aquino allies.

Binay became a national political figure through his promotion of social welfare when mayor of Makati, Metro Manila’s business district. This suggests that Aquino’s inability to stick to the ‘straight path’ may have shifted the focus of the next campaign to the plight of the country’s poor who lack access to decent jobs, adequate education, health care and other social services.

Mark R Thompson is Director at the Southeast Asia Research Centre (SEARC) and Professor of Politics at the Department of Asian and International Studies, City University of Hong Kong.

Categories: Forum

Cutting off Australia’s international television arm

East Asia Forum - Mon, 09/29/2014 - 17:00

Author: Ross Tapsell, ANU

What does the Australia Network’s closure and the launch of Sky News’ Australia Channel mean for Australian soft power?

Since their inception, Australia’s international media organisations have trodden a fine line between promoting Australia’s interests in the Asia Pacific region and upholding the values of the Fourth Estate which sees critical reporting of government as central to its role.

Initially, this debate surrounded the role of Radio Australia, which was established by the Australian government during WWII as a broadcasting service aimed at countering enemy propaganda, but by 1950, responsibility for Radio Australia was returned to the Australian Broadcasting Corporation (ABC) and declared free from government control. Yet, in that same year, the minister for external affairs, Percy Spender, wrote to ABC Chairman Richard Boyer: ‘I think it is important that Radio Australia be looked at as an instrument of foreign policy’.

This raised the question: can an international broadcasting operation be funded by the Australian government but not necessarily support its aims? The Australian media’s role in Indonesia has been central to this debate.

The Indonesia–Australia relationship is often described as Australia’s most important, and the broadcasting media seen as crucial to enhancing mutual understanding. During Indonesia’s New Order (1965–1998) Radio Australia often broadcast independent and controversial news throughout the archipelago, in particular, critical reports about Indonesian-occupied East Timor. Australian officials often had to placate Indonesian officials by explaining that Radio Australia was funded by the government but not beholden to them.

The debate over Radio Australia’s objectives continued until 1997, when the decision was made by then prime minister John Howard to drastically reduce its funding. That same year, the coalition government outsourced Australia’s international television station, Australia Television (established four years earlier), to the Seven Network — despite its impressive penetration in the region, which a Senate Committee concluded equalled that of CNN and the BBC. But the Asian Financial Crisis of 1997 meant advertising dollars were not there for Seven, and after three years it stopped the service. Australia Network returned to the ABC, continuing to splutter along relatively underfunded, and was largely seen as a service for Australian expatriates to watch national sporting events.

By 2012, an internal ABC International Indonesia Review report stated that Australia ‘has a lack of brand recognition in Indonesia’. A key recommendation was to foster connections with Indonesian media organisations, and, in 2013, ABC International formed impressive and unique partnerships with Indonesian media companies, including, Kompas Gramedia, Tempo, Republika Online and, more recently, the television conglomerate MNC Group. ABC provided these companies with Indonesian translations of content at no cost, so that more Australian news would enter the Indonesian media sphere. ABC International CEO Lynley Marshall said this showed ‘a new era of soft diplomacy’.

But in late 2013 relations between Australia and Indonesia reached their lowest point since the East Timor conflict of 1999 as news spread that Australia had tapped the phone of President Susilo Bambang Yudhoyono, his wife and other senior Indonesian officials. As the story initially broke through the ABC, its international arm was able to provide Indonesian news partners with details of the story in the Indonesian language.

This infuriated many Australian government officials and some commentators who believed that ABC International was exacerbating bilateral tensions. Prime Minister Tony Abbott said later on talkback radio that the ABC ‘seemed to delight in broadcasting allegations by a traitor, [Snowden]’.The situation was further exacerbated in January 2014 when the ABC’s Jakarta correspondent reported claims (including photographs) that asylum seekers attempting to come to Australia by boat had possibly had their hands burnt by the Australian Navy. The claims, which were emphatically denied by the head of the navy, were broadcast on Australia Network throughout the region.

It was soon clear that Australia Network’s A$223 million ($US195 million) funding (over 10 years) would be cut from the budget. At the time it was broadcasting in 46 different countries. Foreign Minister Julie Bishop had argued that it was not fulfilling the Australian government’s foreign policy objectives as a ‘tool of public diplomacy’ and questions surrounded ‘whether it is meeting the goal of promoting Australia’s interests overseas’.

Earlier this month, as Australia Network began to shed its staff, it was announced that Sky News (owned by BSkyB and the Seven and Nine Networks) would launch the new Australia Channel. This will be facilitated in conjunction with broadcast provider Globecast Australia. Sky News had missed out on securing Australia Network in 2011, when the then Labor government decided to abort a bungled tender process and leave Australia’s international media arm with the ABC. Sky News is part-owned by Rupert Murdoch, whose newspapers’ support for the Liberal-National Coalition in the 2013 Federal Election was clearly evident. But as Sky News was ‘Australia’s only 24-hour business channel’, it claimed it will ‘help promote Australian culture … [and] showcase Australian industry and Australia as an investment destination’. Its chief executive Angelos Frangopoulos said ‘it shows good outcomes in the national interest don’t necessarily have to be delivered by a government-funded broadcaster’.

Sadly, arguments that a free and critical media were good for promoting Australia’s national interest in the region largely fell on deaf ears. The similarities between the long-debated role of Radio Australia and the recent culling of Australia Network shows how the precise purpose of Australia’s international broadcasters is unlikely to be resolved while officials believe there is a dichotomy between the Fourth Estate and ‘soft diplomacy’.

Australia Network’s closure impacts the reach of Australia’s international news service, and comes at a time when larger international broadcasting organisations are partnering with Indonesian media companies. For example, CNN partners with local media conglomerate TransCorp, while Bloomberg partners with VisiNews Asia. Other well-funded international broadcasters such as the BBC, Deutsche Welle and Al Jazeera continue to increase their Indonesian language services. Australia Channel has stated they are not a replacement for Australia Network and is focusing initially on providing a service to Australian expatriates to gain subscriber fees.

But, if they are Australia’s sole international broadcasting channel, do they plan to go to the government for financial assistance in the future? And, if so, has the line between the role of soft diplomacy and a free and critical media been blurred even further?

Dr Ross Tapsell is a lecturer at the School of Culture, History and Language, College of Asia and the Pacific, the Australian National University.

Categories: Forum

The two faces of Thai authoritarianism

East Asia Forum - Mon, 09/29/2014 - 05:00

Author: Thitinan Pongsudhirak

Thai politics has completed a dramatic turn from electoral authoritarianism under deposed premier Thaksin Shinawatra in 2001–2006 to a virtual military government under General Prayuth Chan-ocha. These two sides of the authoritarian coin, electoral and military, represent Thailand’s painful learning curve. The most daunting challenge for the country is not to choose one or the other but to create a hybrid that combines electoral sources of legitimacy for democratic rule and some measure of moral authority and integrity often lacked by elected officials.

A decade ago, Thaksin was practically unchallenged in Thailand. He had earlier squeaked through an assets concealment trial on a narrow and questionable vote after nearly winning a majority in the January 2001 election. A consummate politician and former police officer, Thaksin benefited from extensive networks in business and the bureaucracy, including the police and army.

In politics, his Thai Rak Thai party became a juggernaut. It devised a popular policy platform, featuring affordable universal healthcare, debt relief and microcredit schemes. It won over most of the rural electorate and even the majority of Bangkok. Absorbing smaller parties, Thai Rak Thai virtually monopolised party politics in view of a weak opposition.

Thaksin penetrated and controlled supposedly independent agencies aimed at promoting accountability, particularly the Constitutional Court, the Election Commission and the Anti-Corruption Commission. His confidants and loyalists steered these agencies. His cousin became the army’s Commander-in-Chief. His police cohorts were fast-tracked to senior positions, including his brother-in-law, who became national police chief. Similarly, Thaksin’s business allies and associated partners secured plum concessions and choice government procurement projects.

After his landslide victory in February 2005, Thaksin became the first prime minister to be re-elected and to preside over a government composed only of one party. But his virtual monopoly on Thai politics and accompanying hubris inevitably got the better of him. Making a lucrative business out of politics led to his demise in the September 2006 military coup. Thaksin’s rule was democratic on paper but authoritarian in practice.

Yet Thaksin’s legacy is already strong. His subsequent proxy governments in 2008 and 2011–2014, under his sister Yingluck Shinawatra, were politically paralysed by anti-Thaksin street protests. When Yingluck looked poised to complete her term, Thaksin’s Pheu Thai party came up with a blanket amnesty bill that upended her government, assisted by the independent agencies that had turned against Thaksin in the 2006 coup. The putsch on 22 May 2014 was merely the knock-out blow on an ineffectual administration that was not allowed to govern.

Now the pendulum has swung to the other, authoritarian end. General Prayuth now heads a regime with no democratic pretences, ruling with absolute power. His is a military government both on paper and in practice. The tone of the 22 May coup clearly signalled that the military would dominate politics, epitomised by the general himself becoming prime minister.

Prayuth’s allies under the National Council for Peace and Order (NCPO) have now taken key portfolios relating to the Thai economy and society, foreign affairs and internal security. The structure of power under the NCPO is clear.

Two months after seizing power, the NCPO rolled out an interim constitution and appointed a National Legislative Assembly (NLA). Today the NLA is filled not with business cronies and spouses of politicians but with military classmates and siblings, who in turn chose Prayuth as prime minister. The caretaker prime minister then selected his cabinet, more than one third of which is military. The National Reform Council (NRC) will soon be formed, leading to a constitution-drafting committee, which will be nominated by the NRC, NLA, cabinet and NCPO.

Like a politburo, the NCPO is thus the nexus of this interim governing structure, comprising the NLA, cabinet, and NRC. This monopoly of power is reminiscent of the Thaksin juggernaut a decade ago. It was a parliamentary dictatorship then as it is now. But the fundamental difference is that the current authoritarian period completely bypassed the electorate.

Prayuth enjoys the same immense personal popularity as Thaksin did. His no-nonsense state of the nation speeches have been to the point and delivered in appealing tones. The NCPO’s anti-corruption campaign is popular and would certainly score more points if it dared to aim at higher-up corruption schemes and concessions, not just low-hanging fruits like extortion rackets that run motorcycle taxis and the state lottery.

Prayuth and the NCPO also benefit from the fact that public expectations started from a low base. After six months of anti-government street protests and policy paralysis, the coup was a relief. Everyone had to make do with the coup because there was no initial alternative in the face of continuing martial law. But reality will start to bite as the military-dominated government starts its day-to-day work. The next 14 months of the NCPO’s timetable to return to democratic rule may be long and hard.

The military-backed government faces a tall order dealing with the grievances and expectations of a neglected electorate. Those who spoke out against the political monster that the Thaksin regime eventually became must now be wary of the potential for the military-backed government setting on a similar path. Unaccountable power with absolute authority and direct rule is inadvisable in Thailand. Past experiences in the 1960s, early 1970s and 1991–1992 have shown that such governments eventually end in tears.

Thitinan Pongsudhirak teaches International Political Economy and is Director of the Institute of Security and International Studies at Chulalongkorn University in Bangkok.

A version of this article was earlier published here in The Straits Times.

Categories: Forum

Modi connects with the American dream

East Asia Forum - Sun, 09/28/2014 - 19:00

Author: Peter Drysdale, East Asia Forum

Before his election to India’s prime ministership, Narendra Modi was persona non grata in the United States because of his alleged complicity in the ethnic violence in Gujarat of 2002 in which 790 Muslims and 254 Hindus died, 2500 people were injured, and 223 more were reported missing. Though a subsequent Indian Supreme Court investigation in 2012 cleared him of complicity in the violence, Modi was still banned from entering the United States, a decision taken by the previous US administration but not lifted by Obama until after Modi’s election.

Yet there is perhaps no Indian prime minister who connects with the American dream in terms of life-forging experience or national aspiration more than Modi. His rise from lower caste origins, the son of a tea-stall vendor, to the top job may be the stuff of Indian soap opera, but it also could have come straight from Hollywood. His success in winning such a huge mandate from a wide cross section of the Indian electorate, whatever baggage he carried from the Hindu nationalist right, is a heart-warming story of the triumph of a social underdog over the political establishment — a story that resonates well in America.

As curtain-raisers to this week’s events in New York and Washington, US Secretary of State John Kerry and US Secretary of Defence Chuck Hagel visited Delhi last month, proclaiming India as an ‘indispensable partner for the 21st century’ and the visit as a ‘transformative moment’ in the relationship.

Yet there is much still to be sorted in India’s relationship with the United States. Ostensibly, Modi’s ambitions to boost the Indian economy could be a powerful kick-start to improving Indo–US ties. But despite the aspirations of its new leadership, India’s commitment to economic openness is coming from way behind and the Obama administration, like most of the international policy community, remains deeply disaffected by India’s protectionist economic policies which continue to make it difficult for US companies to invest and do business more widely in India. The goal of US$500 billion bilateral trade a year, declared on the Kerry visit, will remain a pipedream unless India changes policy direction more sharply than Modi has been able in his first 100 days.

As C Uday Bhaskar puts it, ‘The US may not be able to make any large fiscal commitment to Modi, as Japan’s Prime Minister Shinzo Abe and to an extent China’s President Xi Jinping have been able to during their recent meetings with Modi. However, given the size of the US economy and the complementarities with India, the Obama–Modi meeting may yield fruit on the issues of trade and technology transfers. Indian red-tape and complex bureaucratic procedures do not make India an attractive business destination and it remains to be seen how Modi will be able to convince his interlocutors, both US corporate and political leaders, that India is now moving from “red tape to red carpet”, as Modi put it in Tokyo’.

There have been modest moves to lift investment restrictions — the decisions to raise the limit on foreign direct investment to 49 per cent in the insurance sector and to open up the defence sector to foreign investment have been welcomed by American investors — and there is great potential through increasing investment in infrastructure, growing the manufacturing industry, modernising the military and attracting more foreign investment. But it has been, perhaps understandably, a slow start. Progress towards the bilateral investment treaty which the United States wants will not be easy nor will it be easy to resolve issues over liability laws relating to nuclear trade.

The Modi government’s torpedoing the WTO Trade Facilitation Agreement has seriously damaged international confidence in its ‘Made in India’ strategy. Reneging on its commitment to implement the WTO’s Bali deal on trade facilitation is seen by some in India as a tough assertion of domestic over foreign priorities but in the international policy and business communities it’s universally seen as a betrayal of the promise of a more coherent national development strategy. In American diplomatic language, it was a ‘confusing signal'; feelings underneath the diplomatic language are close to unprintable.

Also commenting on Modi’s visit, Sourabh Gupta urges India to re-join the global consensus on multilateral trade. ‘When Prime Minister Modi greets President Obama (tomorrow)’, Gupta writes, ‘he should convey that India will withdraw its hold on the trade facilitation agreement protocol with immediate effect….(and) that New Delhi will embrace a good faith effort to finding a permanent solution to the public food provisioning impasse on the Bali timeline — while reserving the option to inject pressure points on the multilateral trade system if the inverted, and unjust, features of the Uruguay Round Agreement on Agriculture are not revised’.

The Obama administration is also trying to mobilise Indian participation in the Asian security arrangements as a counterweight to China. This is likely to be difficult for two reasons: it will be difficult to reconcile with Modi’s pluralist diplomacy; and US objectives themselves remain unclear. Modi has made it clear that China, Japan and Russia are important partners for India and has sought to deepen bilateral relations with them. The structure of India’s growing if awkward relations with China were on full display when Xi Jinping paid an unusually early visit to Delhi last month. Modi is looking to chart his own partnership with Beijing based on a thriving economic partnership and is unlikely to take an overtly anti-China stance. In his former role as chief minister for Gujarat, Modi achieved a significant level of Chinese investment in his state and the Xi visit promises to up that across the country. The United States wishes to re-establish its ‘influence’ in Asia but for what purposes, apart from muscling up to China, is not entirely clear.

There is much in Modi’s vision of an India that can look out and compete in the world in which the United States can rejoice. A subtle conception of US diplomatic interests would also sensibly include India’s finding its way with China as well as the other major economic powers in Asia in that. And his US visit and the G20 summit in Australia next month are important opportunities for Modi to articulate a coherent and comprehensive development vision and a policy framework that outlines his policy priorities and the measures that he will take to boost international confidence in the future of the Indian economy.

Peter Drysdale is Editor of the East Asia Forum.

Categories: Forum

Obama and Modi must cook up a solution on food subsidies and the WTO

East Asia Forum - Sun, 09/28/2014 - 05:00

Author: Sourabh Gupta, Samuels International

The young Narendra Modi government has not covered itself in glory on the international trade policy front.

At the second ministerial meeting of the Regional Comprehensive Economic Partnership (RCEP) negotiations in late August, New Delhi proposed a jaw-droppingly low rate of trade liberalisation for industrial goods. Its insistence earlier this year at the WTO on re-negotiating the ministerial decision on public stockholding for food security purposes has halted the December 2013 Bali Package in its tracks and thrown the Doha Development Agenda into further disarray. India’s obstinacy is tactless: trade facilitation is the least objectionable element of trade liberalisation imaginable. New Delhi must reverse course forthwith and re-join the global consensus on multilateral trade.

When Prime Minister Modi greets President Obama in the Oval Office on Tuesday, he should convey that India will withdraw its hold on the trade facilitation agreement protocol with immediate effect, and that New Delhi will in good faith find a permanent solution to the public food provisioning impasse on the Bali timeline — while reserving the option to apply pressure on the multilateral trade system if the inverted, and unjust, features of the Uruguay Round Agreement on Agriculture are not revised.

As per the domestic support pillar of the 1994 Uruguay Round agriculture agreement, public stockholding programs for food security purposes in developing countries are exempt from subsidy reduction commitments so long as the accumulation of such stocks is undertaken at prevailing market prices and corresponds to transparent and predetermined food security targets. If domestic procurement is undertaken at a support/acquisition price that exceeds the market price, a price differential multiplied by the eligible production procured is treated as a trade distorting subsidy and assessed towards that country’s aggregate measure of support ceiling. Most developing countries, including India, voluntarily notified a zero aggregate support measure — meaning that they would limit their trade-distorting domestic support, if any, to a 10 per cent de minimis ceiling on an individual product-specific basis.

For Uruguay Round agricultural agreement accounting purposes, however, once the support/acquisition price exceeds the market price, the unit price differential is not calculated using the global market price as the base. Instead it is calculated using an external reference price that is out of date (it uses a base period of 1986–88) and out of touch with domestic rates of food inflation.

The perverse net effect of this skewed accounting is that even though India’s recent support prices for rice and wheat are a bare smidgeon above the international market price, because this latter price is substantially above the 1986–88 base price, the measured subsidy bill has breached or is close to breaching the 10 per cent product-specific de minimis ceiling. The rollout of the Indian government’s gargantuan national food security program will shatter whatever ambiguity remains on this accounting front, even if domestic procurement prices remain almost at par with international prices. This is a travesty: so long as stocks do not leak overseas, New Delhi’s food provisioning program does not in principle distort international markets.

In the meantime, US support for its sugar sector in 2011 exceeded the (5 per cent) product-specific de minimis ceiling eight times over, yet due to the high bindings notified in its non-product-specific subsidies category, Washington was able to shunt the excess trade-distorting sugar support to this latter category and still remain within its Uruguay Round Aggregate Measurement of Support (AMS) ceilings. The scale of the United States’ post-Uruguay Round rice and wheat subsidies, too, aside from being the decisive factor in ensuring their commercial viability, has depressed international market prices. This upside-down state of play — permissible trade-distorting subsidies hoarded primarily by the rich and powerful, with a fallback option to switch between product and non-product specific support — must not be allowed to stand. The quibbling on the banks of Lake Geneva on this must end.

When President Obama meets Prime Minister Modi, he should make clear that his administration will support the effort to update the WTO agriculture agreement’s external reference price using a 3-year or 5-year rolling average price, or, alternatively, forgo the counting of food stocks that are transparently acquired and released at reasonable administrative prices in low-income countries for food security purposes from AMS calculations altogether. This latter option is no giveaway; the Doha Round agriculture negotiations chair, Crawford Falconer, offered a ‘clean’ (implying there were no differences among members) modalities text in December 2008 that had affirmed the same. A work program which pares down trade-distorting non-product specific subsidies by dividing up country-wise aggregate measures of supports on a product-by-product basis and then applies maximum reduction commitments to the most subsidy-reliant items, should also be initiated.

Equally, Modi on his return to New Delhi should ensure that his government’s administered price purchases of grain are synchronised with the requirements of the public distribution system and food security needs. They are vastly in excess of requirements currently. He should also gradually disentangle support for producers from protection for consumers by hastening the rollout of his predecessor’s electronic direct benefits transfer scheme. This will minimize the large illegal diversions of subsidized grains to the open market. In the interim, he should contemplate transferring a fraction of the market value of production in the form of cash payments to farmers. Cash subsidies, as opposed to price supports as per WTO rules, are calculated using the market price, not the external reference price.

Democratic societies have not done a terribly good job of reconciling rural livelihood interests with multilateral trade liberalisation. In the late 1940s, the discriminatory application of US import quotas linked to domestic price supports adversely tipped the balance in the negotiations on the stillborn International Trade Organization’s charter. In July 2008, the discord between the US and India over the special safeguard mechanism for smallholders was a proximate cause of the breakdown in the Doha round of trade negotiations. Obama and Modi must not let this history go on repeating itself.

Sourabh Gupta is a Senior Research Associate at Samuels International Associates, Inc and an EAF Distinguished Fellow.

Categories: Forum

The Modi show visits the United States

East Asia Forum - Sat, 09/27/2014 - 18:21

Author: C Uday Bhaskar, Society for Policy Studies

The Indian prime minister, Narendra Modi, has begun his maiden visit to the USA this week. He will visit Washington on Monday for his first summit level meeting with US President Barack Obama.

The trip offers the chance for Modi to project himself as a global leader with a distinctive vision and clear objectives. In an extensive interview with CNN on the eve of his visit, Modi held forth on a range of issues, ranging from terrorism and the challenge of radical ideologies to the rise of China. Some of these themes will be elucidated in greater detail as the trip progresses.

Modi will be able to project his impressive political profile in New York. Billed as a major public event with an estimated crowd of almost 20,000 people, it will draw many of the Indian diaspora. In keeping with his ability to harness communication technology effectively the event will also be live streamed to other cities in the US and India. It is not often that a foreign leader is able to attract such large numbers at a public event and the sub-text of the relevance of the Indian diaspora in domestic US politics is discernible — albeit in a subtle manner. Politics is the art of managing spectacle and the Modi visit did not disappoint. But the Washington part of the Modi visit will be more sober than the General Assembly speech. Politically, the real contrast will be between a confident Indian prime minister and a beleaguered US president.

Until recently the US had denied a visa to Narendra Modi — then chief minister of Gujarat — and it was only after his emphatic electoral victory that Washington reviewed this imprudent decision. To his credit, Modi — who cannot be accused of a poor memory — has not appeared to have allowed this issue to mar his perception of the US. Modi will have a wide range of issues that he wishes to discuss. The India–US bilateral relationship has been moribund since 2008 due to the global economic downturn and the domestic political constraints associated with the Manmohan Singh government in its second term (2009–14).

The US may not be able to make any large fiscal commitment to Modi, as Japan’s Prime Minister Shinzo Abe and to an extent China’s President Xi Jinping have been able to during their recent meetings with Modi. However, given the size of the US economy and the complementarities with India, the Obama–Modi meeting may yield fruit on the issues of trade and technology transfers. Indian red-tape and complex bureaucratic procedures do not make India an attractive business destination and it remains to be seen how Modi will be able to convince his interlocutors, both US corporate and political leaders, that India is now moving from ‘red tape to red carpet’, as Modi put it in Tokyo.

In light of the recent visit of President Xi to India and the manner in which PLA troops flexed their muscle, enhancing India’s comprehensive military capability will figure high on Modi’s agenda. India and the US signed a comprehensive defence cooperation agreement in June 2005 but it has remained on the backburner for almost a decade. The recent visit of US Secretary of Defense Chuck Hagel to Delhi drew attention to the considerable potential that this sector offers. With luck, the Modi–Obama meeting will infuse much-needed political traction into this aspect of the bilateral relationship.

Regional and global security issues such as the future status of Afghanistan, the turmoil in Pakistan and the threat posed by terrorist groups like al-Qaeda and Islamic State will figure, but it is unlikely that there will be any consensus given the divergent views that Delhi and the White House have had about the role of Pakistan’s military and its links with terrorist groups.

Perhaps the one area where the two leaders will have a relatively candid conversation is about managing the assertiveness of China, particularly in relation to territoriality. Will China abide by international law and customary practice in the South China Sea, for example?

The relationship between India and United States has great potential, and the meeting between Obama and Modi could very well herald the start of a more productive bilateral relationship.

C Uday Bhaskar is Director of the Society for Policy Studies, New Delhi.

Categories: Forum

Protecting pluralism in India’s media market

East Asia Forum - Sat, 09/27/2014 - 05:00

Authors: Suzanne Rab and Alison Sprague, London

Competition and diversity in media and communications are fundamental to a healthy economy and democracy. This has been clear in India in recent years. In May 2014 the Indian Law Commission — seeking to tighten media ownership regulation — issued a consultation paper to resurrect controversial reform proposals of the Telecom Regulatory Authority of India (TRAI). In India and internationally there is no consensus on the exact manner and scope of interventions that are appropriate to protect competition and pluralism in media markets.

Regulation of media ownership is often justified on two main grounds. The first is to ensure that economic power does not become concentrated in the hands of a particular entity, which may raise prices above their market-competitive level or reduce quality or innovation. The second argument is to safeguard media pluralism (varying viewpoints and opinions), creating an environment which is conducive to freedom of expression.

Most agree media pluralism is a ‘good thing’. But India, or indeed any other democracy that seeks to regulate this area, has not decided how many viewpoints make a sufficient plurality.

On 15 February 2013 the TRAI released a consultation paper on issues relating to ownership — particularly cross-ownership — of the media. In its statement on the launch of the consultation, the TRAI observed that media markets in India are undergoing changes that it believed may have significant implications for competition and consumer choice in the sector.

The TRAI posed a number of detailed questions largely covering possible methods to regulate media ownership. Among the more controversial consultation issues were: first, whether it would be appropriate to have a ‘one out of three rule’ where companies can only run one media outlet, such as radio or TV, in a single area; second, whether it would be appropriate to restrict an entity’s ownership of a media outlet to a certain level (say 20 per cent); and third, whether any entity should be allowed to have an interest in both broadcasting and distribution.

But the TRAI has not, as yet, set out a discussion of identified problems in media markets in India today or made explicit the policy objectives that need to be fulfilled: there is an absence of a problem statement beyond data and market analysis which predated the consultation by almost four years. Moreover, the TRAI did not appear to have considered the costs and benefits of the various interventions it was considering.

These are serious omissions.

It was also concerning that while the TRAI acknowledged convergence, it did not discuss its implications for technology, networks, services and, fundamentally, regulation. A similarly ill-considered approach was also taken by the TRAI in the narrower 2013 consultation on monopoly and market dominance in cable TV. The UK media ownership regime was presented as a ‘poster child’ for regulation. In some instances, measures that the UK has now rejected in favour of a more liberal approach were promoted.

India certainly has plenty of international inspiration and examples from which to borrow — or reject. The challenge is how to cut through the morass of rules and create something that works for India and that addresses its specific challenges. If one of the biggest concerns is political control of the press, then a remedy that targets that may well be warranted. However, it is questioned whether a wholesale importation of plurality regulation, which has not necessarily been workable elsewhere, is a proportionate solution, at least in the absence of an assessment of the alternatives.

Competition law can go a long way in ensuring that one voice does not use its economic and political power to crowd out other viewpoints. However, a level of consensus is emerging that media pluralism and competition are distinct and that there is, in principle, a regulatory ‘gap’ where competition law alone cannot address some of the challenges presented by individuals or groups using their influence to distort the media.

The question, then, is how to plug that gap? This may call for tighter restrictions on the types of entities that can control the media such as political parties or government agencies. However, it will be important to ensure that any additional controls do not result in replacing one form of objectionable control with another.

It is difficult to be too enthusiastic about a total rewrite of India’s media regulation to ban any form of market expansion across the media supply chain or a blanket threshold on the level of ownership interest — at least without more detailed inquiry as to what economic or other considerations dictate that approach.

Suzanne Rab is a barrister specialising in competition law, EU law and regulation at Serle Court Chambers.

Alison Sprague is an economist specialising in media with CEG Europe.

Suzanne and Alison are co-authors of the book, Media Ownership and Control: Law, Economics and Policy in an Indian and International Context’, published by Hart Studies in Competition Law in July 2014.

Categories: Forum

The ASEAN Economic Community’s labour policy needs work

East Asia Forum - Fri, 09/26/2014 - 17:00

Author: Sanchita Basu Das, ISEAS

Driven by the looming 2015 deadline, discussion is heating up about the impact ASEAN’s Economic Community (AEC) will have on employment. Set to begin on 31 December 2015, the AEC envisions ASEAN as a single market and production base characterised by the free flow of goods, services, investments and the freer flow of capital and skills. Two key factors will affect the region’s employment prospects.

First, structural change in the domestic economies of ASEAN’s member countries will impact the labour market, as trade integration leads member countries to reallocate resources from less productive to more productive economic activities. And some occupations are likely to grow as the ASEAN integration process progresses.

This kind of structural change, and changing employment dynamics, has occurred in the past. During the last two decades, ASEAN saw a decline in employment in agriculture, which has mainly been compensated by gains in the services sector. Currently, while agriculture accounts for 40 per cent of total employment, industry accounts for 19 per cent and services 41 per cent.

But this regional generalisation masks cross-country variations. Today, agriculture remains the largest employer for Cambodia, Laos, Myanmar, Thailand and Vietnam, while services sector employment plays an important role in Singapore, Brunei, Malaysia, the Philippines and Indonesia.

A recent publication by the International Labour Organization and the Asian Development Bank on six ASEAN countries — Cambodia, Indonesia, Laos, the Philippines, Thailand and Vietnam — found that with the AEC in place, jobs in agriculture; trade; transportation; and construction would increase in all six countries by 2025. Vietnam would gain six million additional jobs, Indonesia 1.9 million and Cambodia 1.1 million. But, for these economies, job losses would be felt in food processing, private services and mining industries.

Another impact of the AEC on the labour market could also be a shift in demand for particular occupations. The largest absolute demand is likely to be for low- and medium-skill jobs, though there will also be demand for high-skill jobs.

The establishment of Mutual Recognition Arrangements (MRAs) for professional services will also affect employment in the region. MRAs will promote the flow of skilled labour. Member states have adopted a framework for MRAs for seven professions — engineering, architecture, nursing, accountancy, surveying services, medicine and dentistry. MRAs will allow each member country to recognise education, experience, licences and certificates granted in other countries.

But so far, only the skills of architects and engineers — who are registered with the professional regulatory body both in their home countries and at the regional level — will receive cross-border recognition.

But with the MRAs, effective movement and the subsequent benefits will be limited as domestic rules and regulations governing these professions still apply.

For example, in Malaysia, foreign engineers have to be licensed by the Board of Engineers for specific projects and must be sponsored by the Malaysian company carrying out the project. The Malaysian company must further demonstrate to the Board of Engineers that they are not able to find a domestic engineer for the job. A foreign engineer in Malaysia must also be a registered engineer in his or her home country, have a minimum of 10 years experience and must have a physical presence in Malaysia for at least 180 days in one calendar year.

Similarly, for architects to become fully licensed, most countries impose restrictions on residency or nationality. Foreign architects are often allowed to work on a project-based basis and, in most cases, employers have to submit proof that an equivalent national professional is not available for the job.

Domestic regulations will also limit the cross-border movement of nurses. For example, in order for a Filipino nurse to practise in Thailand, the candidate must pass the national licensure exam in Thai. As for the surveying profession, the MRA only provides the enabling framework of broad principles for further bilateral and multilateral negotiations among ASEAN member states. MRAs will be unable to provide greater mobility unless they address the domestic rules and regulations of ASEAN economies.

The advent of the AEC will not immediately change the ASEAN labour market. Over time, economic integration may cause structural changes and with that changes in employment scenarios. But policymakers will have enough transition time to address issues in their domestic economies.

The AEC may result in higher welfare, wages and employment. But it is expected that these benefits will be distributed unevenly among countries, sectors and genders. To address this, coordinated and coherent policies will be needed at both regional and national levels to ensure inclusive and fair outcomes. Policymakers should also continue with their efforts to ensure quality education and training in their economies as ASEAN strives to remain competitive and to develop itself as a regional production base in the future.

Sanchita Basu Das is a Fellow and Lead Researcher in Economic Affairs at the ASEAN Studies Centre, Institute of Southeast Asian Studies (ISEAS), Singapore.

A version of this article was first published here in The Straits Times on 4 August 2014.

Categories: Forum

Japan may not be such an easy pushover on nuclear deal with India

East Asia Forum - Fri, 09/26/2014 - 05:00

Author: David Brewster, ANU

In recent weeks we have seen the ‘bromance’ between India and Japan reach new heights. Earlier this month, India’s Prime Minister Narendra Modi visited Tokyo amid media hype of a special relationship, and even a de facto alliance, between the two countries. There is talk of a special ‘personal chemistry’ between Modi and Japanese Prime Minister Shinzo Abe and much was made of the claim that Modi was one of only three people that Abe follows on Twitter.

We are told, among other things, that India will receive 3.5 trillion yen (US$28 billion) in Japanese investment, that Japan will build bullet trains for India and that India will become a major new supplier of rare earth minerals to Japan. There have been important developments on the security front, including plans for expanded security dialogues and the prospect of more naval exercises. We were also told that there were imminent deals on the sale of US-2 amphibious aircraft to the Indian Navy and on the supply of Japanese nuclear technology to India.

The subtext of this friendship is of course China, as the two major regional powers find common cause against their huge neighbour. To some in New Delhi, these developments represent steps towards a long-held dream of a multipolar world in which India and Japan can work together as Asian partners — perhaps one day without the ‘third wheel’ of the United States.

Well, not so fast — deals on the US-2 aircraft and the supply of nuclear technology face significant problems which may take quite some time to work through. We need to be careful about the rhetoric, particularly from some in the Indian media, far exceeding the reality. While there are good reasons to expect a closer strategic alignment between India and Japan in the long term, there are also many political, institutional and cultural obstacles that will make that road a long and rocky one. Building the relationship will likely take considerable time and patience on both sides.

Through much of the 20th century, the relationship between India and Japan was cordial, if somewhat distant. Since the end of the Cold War, one of the biggest areas of disagreement has been in the nuclear realm. Japan has long been a leading supporter of international norms against the proliferation of nuclear weapons, including the Nuclear Non-Proliferation Treaty (NPT) and the Comprehensive Test Ban Treaty (CTBT). India is one of the few major countries in the world that is not a party to either the NPT or the CTBT, arguing that the international non-proliferation system ‘discriminates’ against it. In 1998, Japan and Australia led international condemnation of India’s nuclear weapons tests. Since that time, Tokyo’s stance has been that India should sign the NPT (which it practically cannot, because it would mean giving up its nuclear weapons), or at least become a party to the CTBT, so there will be no more nuclear tests.

A nuclear agreement has been under negotiation between the two countries since 2010, but without real progress. The deal is important for India for both practical and symbolic reasons. India has an ambitious program to increase its nuclear generation capacity, including becoming one of the biggest users of nuclear power in the world. Japanese companies (Toshiba, Hitachi and Mitsubishi) rank among the biggest suppliers of nuclear technology, with Toshiba (including Westinghouse, which it controls) representing in the order of 30 per cent of total worldwide nuclear reactor capacity. Japan is at the forefront of several nuclear technologies, including mixed oxide fuels, light water reactors, advanced boiled water reactors and fast breeder reactors. French and US nuclear suppliers also rely on Japanese companies for key technologies. Lack of access to these technologies would significantly restrict India’s options and could prevent it from achieving its nuclear plans. Just as important is the symbolism of a nuclear deal — it would effectively signal Japan’s acceptance of India as a great power and a legitimate nuclear weapons state.

For their part, the big Japanese nuclear companies are very keen to supply technology to India. Since the Fukushima disaster in 2011, the Japanese nuclear industry has effectively been in a state of suspended animation and India represents one of the few large growth markets in the world for nuclear power.

But any deal must contend with extremely strong opposition in Japan to nuclear weapons and growing opposition to nuclear power. This is felt right across the political spectrum. Many argue that a deal with India would punch a big hole in the international nuclear non-proliferation system, making it harder to hold the line against other less responsible countries. There is also opposition — especially since Fukushima — to assisting in the development of the Indian nuclear power industry.

The depth of this sentiment is not well understood or even acknowledged in New Delhi, where India’s right to be recognised as a legitimate nuclear weapons state is taken as a matter of course. For many in New Delhi, a preoccupation with establishing India’s nuclear legitimacy blinds them to the deep concerns in Japan about nuclear proliferation.

When Modi visited Tokyo earlier this month, he allowed public rhetoric and expectations about the growing relationship to exceed reality. He apparently assumed that Japan’s nuclear concerns could be fudged.  It appears that Japan will likely support India’s bid to join the international Nuclear Suppliers Group as the only non-NPT country. But Modi is rumoured to have come away angry and disappointed that Tokyo would not agree to India’s demands for a nuclear deal with Japan without New Delhi giving a clear commitment to a ban on nuclear tests as well as placing a cap on liability for accidents. New Delhi no doubt hopes that these issues can be resolved before the next summit meeting between the two. But India may find that, at least on nuclear issues, Japan is not such an easy pushover.

David Brewster is a Visiting Fellow at the Strategic and Defence Studies Centre, Australian National University.

Categories: Forum

Indonesia and Malaysia need to focus on a ‘soft’ approach to tackle IS support on social media

East Asia Forum - Thu, 09/25/2014 - 17:00

Authors: Stefanie Kam and Robi Sugara, RSIS

In response to the rise in Indonesian and Malaysian fighters joining the extremist Islamic State (IS) group, Jakarta and Kuala Lumpur have taken action to criminalise membership. The Indonesian Ulema Council (MUI), the nation’s top Muslim clerical body, also released a statement that it was haram, or forbidden, for Muslims to participate in IS activities. Malaysian Prime Minister Najib Razak has also issued a strongly worded statement condemning IS for its actions, which ‘run counter to Islamic faith, culture and to common humanity’.

These are positive moves. But they have been inadequate, given the popularisation of IS ideological beliefs via social media.

Indonesia, in response to the 2002 Bali bombing, the twin bombing of the Marriott and Ritz-Carlton in 2009, and other attacks on Indonesian soil, adjusted its counter-terrorism strategy. Indonesia has stressed a hard approach to countering the threat of terrorism, primarily through the lens of law enforcement. Over 600 terrorists have been prosecuted in the wake of the 2002 Bali bombings. Currently, the Indonesian police are responsible for counterterror operations, particularly the elite counter-terrorism unit, Detachment 88.

But Indonesia’s hard approach has resulted in the growing incidence of terrorist attacks targeted at the police. Allegedly, it has also created convergence between jihadist fighters and religious vigilante groups — such as Jamaah Ansharut Tauhid (JAT) — providing opportunities for the jihadist groups to recruit and enhance their influence in society.

Malaysia has also stepped up its counterterrorism efforts and arrested several individuals amid reports that four new Malaysian militant groups, identified by their acronyms BKAW, BAJ, Dimzia and ADI, are bent on creating a ‘super’ Islamic caliphate in parts of Southeast Asia, including secular Singapore.

So far, the emphasis on hard approaches to countering terrorism has brought some success in defeating terrorism and disrupting terrorist plots. But the rising influence of social media and the popularisation of IS ideologies through the internet highlights the need for states to be innovative in using modern communications to counter the growing threat of radicalisation.

The exposure of Malaysians and Indonesians to external currents of contemporary Muslim socio-political thought — ranging from the moderate-liberal, radical and sectarian — is intensified by social media. Indonesia has the second-largest population of Facebook users and the fourth-largest population of Twitter users in the world. Malaysia has also seen an increase in internet users since 2000, from 21 per cent to 65 per cent in 2012.

Research has shown that young people are at greatest risk of being radicalised by extremist messages. This is particularly important because of the use of social media by young people. The ease and pace of communicating via such social media platforms are what keeps them ‘hooked’. Governments need to drive the online debate to ensure that their message is heard above the extremists’. The use of social media by radical groups to recruit, raise funds and spread propaganda messages should not be taken lightly.

A video by the IS released in July featuring Indonesian fighter Abu Muhammad al-Indonesi showed him delivering an impassioned appeal to fellow Indonesians to ‘join the ranks’. A number of Indonesian IS fighters are reportedly also using social networking platforms such as Facebook to recruit fighters. According to Indonesia’s National Agency for Combating Terrorism (BNPT), there are currently 34 Indonesians who have joined the IS group. These numbers do not include Indonesians who have joined other groups in Syria and Iraq in the jihadist cause.

Malaysian authorities say that the IS sympathisers are attracting a small number of Malaysians from a wide variety of backgrounds through social media, particularly Facebook. They have also managed to raise funds through such channels.

In early August, photos of a dead 52-year-old jihadist Malaysian fighter who was formerly a member of the Kumpulan Mujahidin Malaysia (KMM) were uploaded and circulated via social media and blogs. The former KMM member allegedly died while defending the town of Arzeh with several other jihadist fighters. The photo was ‘liked’ by thousands of online users.

The primacy of IS theological arguments feature strongly in the Indonesian militants motivations to fight in Syria. The IS believes that the ‘Final Battle’ against the false prophets will ensue in the ongoing battle in Syria. The activities of Malaysian IS supporters on Facebook on the other hand point to a more complex mix of motivations for Malaysians joining the IS, most of which are political, financial or ideological.

The distinct divergences in the causes for motivating these Indonesian and Malaysian fighters to join the IS, as well as the differences in contexts, highlight the need for tailored responses by the state and community in each country.

To date, IS has carried out executions, including beheadings. In many cases, IS has videotaped the executions and posted them online. There is a need to be discreet in publicising the IS to the larger community without exaggerating or sensationalising the group, so as to deny them the publicity that they seek.

Governments, with the help of civil society activists, should partner to channel key messages of religious moderation and interfaith tolerance through soft media campaigns.

Stefanie Kam Li Yee is an Associate Research Fellow at S. Rajaratnam School of International Studies.

Robi Sugara is a graduate student pursuing an M.Sc in Strategic Studies at the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University (NTU), Singapore.

Categories: Forum

Inflation fears blurring Modi’s ‘Made in India’ vision

East Asia Forum - Thu, 09/25/2014 - 05:00

Author: Ranjit Goswami, IMT Nagpur

On 15 August 2014, India’s Prime Minister Narendra Modi delivered his inaugural Independence Day speech. At 80 minutes, it was the longest speech by an Indian Prime Minister since Jawaharlal Nehru’s time. The speech touched upon the various challenges that the world’s largest democracy faces, from female feticide to sanitation. He talked about the need for a new institution in the place of the Planning Commission, created back in 1950, and the need for girls’ toilets at every school, to tackle the high drop-out rates of girls.

But the crux of the Independence Day speech came towards the end, when Modi stretched out his hands in a gesture that can be explained from his challenging early life, when he had been briefly associated with Indian theatre. The message was one that has been relevant to India for a long time: ‘Come, make in India’. India needs to increase jobs, sustain growth, and lower its trade deficit by boosting manufacturing exports, which requires that manufacturing be given higher prominence in the Indian economy.

Surprisingly, the speech was silent on another key issue: the sticky and stubbornly-high inflation that India has been experiencing — a critical plank on which the 2014 general elections were fought.

The silence is understandable. Inflation in India — or rather the Consumer Price Index (CPI) which, due to its composition, places nearly 50 per cent weight on food products — is not something that can be tamed in 100 days. In South Korea, food products account for 14 per cent of the inflation basket; in China it is 32 per cent. Core inflation, as measured in the US and many other developed countries, excludes volatile food and energy prices altogether. As India’s integration with global markets strengthens, the country is likely to witness pressure from food inflation as global commodity prices equalise.

Inflation is always the biggest tax on the underprivileged sections of the population. Under any measure of poverty, irrespective of the methodology or its validity, India remains home to the largest number of poor people globally.

India did not miss the ‘manufacturing boat’ by accident. Looking at manufacturing value-added as a percentage of GDP for 2013, India’s 13 per cent was lower than that of China (32 per cent on 2011 data), South Korea (31 per cent), Indonesia (24 per cent), Singapore (19 per cent), Japan (18 per cent on 2012 data), Bangladesh (18 per cent) and Sri Lanka (18 per cent). Of these, India’s per capita nominal GDP is greater only than that of Bangladesh. On per capita manufacturing value-added nominal GDP, India therefore is 33 per cent of Sri Lanka, 23 per cent of Indonesia, 9 per cent of China, and 2–3 per cent of Japan, South Korea and Singapore.

The main reason Indian manufacturing doesn’t thrive is high, sticky and stubborn inflation, coupled with high fiscal deficits, which increases the domestic cost of capital. Among the nations mentioned above, India’s cost of capital, at 8 per cent, is the highest, as interest rates in Bangladesh and Sri Lanka are at 7.2 and 6.5 per cent respectively. In a contemporary world, this is contrary to negative bond yields in Germany and France, and negative nominal deposit rates in the EU due to ECB easing. The US and Japan have been continuing easy monetary policy, and China too sees an abundance of capital with moderate inflation. While India’s current account deficit figures have shown some improvements since last year, uncertain gold demand and increasing crude prices can put pressure on the Indian rupee, which over the years has steadily diminished in value, thereby posing risks for foreign direct investment inflows too. India has been, and remains, starved of productive capital, with high inflation.

Another problem with India’s high cost of capital is the attendant increase in the debt service ratio for government. Despite the fact that India’s debt-to-GDP ratio was much lower than that of Japan’s in 2012 (49.7 per cent of GDP in India to 196.5 per cent in Japan), the Indian government has been forced to spend a much high proportion on servicing its debt. As per 2014 budget, 20 per cent of government expenditure is on servicing state debt, which hampers its efforts to spend more on either investment or welfare.

McKinsey has previously highlighted that, between 2006–2010, the majority of India’s top 1000 manufacturers had returns on invested capital (ROIC) lower than their weighted average cost of capital (WACC). The situation worsened considerably during 2010–2014, until sentiments improved with the formation of a stable government under Modi. The long-term weighted average cost of capital during 2006–10 was 12 per cent. It is no wonder that the banks that did lend to manufacturing or the infrastructure sector in India have been staring at huge non-performing assets.

On top of the above, India has always encouraged returns on speculative investments. From 2006 onward, the return on India’s equity index, Nifty, has been nearly 14 per cent, mostly tax exempt — compared to 5.6 per cent of Hang Seng Index of Hong Kong, or 6.8 per cent of SSE Composite Index of Shanghai, the latter two being taxable. It is true that in between the return has been patchy. The return on gold — despite depressed global prices — has also been more than 14 per cent (tax-free) in Indian rupees. Until 2013, there was no import duty on gold, despite its huge drag on the current account deficit. Returns on real estate, more speculative in nature, has been much higher — although there is probably no pan-India real estate indices for this period.

Work by the Massachusetts Institute of Technology has debunked the myth that the availability of cheap manufacturing workers trumps productivity. While Germany’s manufacturing workers receive wages that are 66 per cent higher than their American counterparts, Germany remains more competitive with a huge manufacturing trade surplus. On the supply side, while the pool of workers entering India’s job market is both huge and cheap, this abundance of low-cost labour may not constitute that much of a competitive advantage when issues of productivity, infrastructure and supply chain efficiency are considered. Currently, more than 50 per cent of India’s manufacturing workforce does not employ electricity in their manufacturing activities.

Sentiment in India has been looking up, but this optimism is currently limited to the speculative parts of the economy only. India faces other challenges, from environmental degradation to judicial interventions in transfers of natural resources to the private sector for manufacturing. The Governor of the Reserve Bank of India, Dr Raghuram Rajan, has made it clear that fighting inflation remains the top priority of India’s central bank.

Ranjit Goswami is Officiating Director at the Institute of Management Technology (IMT), Nagpur.

Categories: Forum

Beijing’s growing influence over Hong Kong

East Asia Forum - Wed, 09/24/2014 - 17:00

Author: Stephan Ortmann, City University of Hong Kong

On 31 August, when Beijing’s offer of universal suffrage to Hong Kong came with an extremely restrictive framework allowing for only two to three establishment candidates, it was just another sign of the Chinese government taking greater control over its special administrative region.

The move is part of a far narrower interpretation of the ‘one country, two systems’ principle first agreed upon in the Sino-British Joint Declaration of 1984. The agreement stipulated that Hong Kong should be able to continue its ‘capitalist’ economic and political systems following the handover in 1997 for at least 50 years. While China maintained a relatively low profile in the period immediately after the handover, this has changed over the years.

After a mass demonstration on 1 July 2003, the Chinese government failed in its push to implement national security legislation in Hong Kong — prompting Beijing to increase its influence inside the city. This has intensified in more recent years. Many voices favourable to the pan-democracy camp have been forced out of Hong Kong’s traditional media. Overall the media has become more pro-China in recent years, and prominent firms have refused to advertise in pro-democracy newspaper Apple Daily. The newspaper’s owner, Jimmy Lai, also faced massive legal scrutiny after it was revealed that he had donated significant amounts of money to the democratic camp.

In June 2014, a Beijing white paper on Hong Kong’s status and political future reaffirmed China’s dominant role. The document seemed to undermine the principle of judicial independence when it described judges as administrators with an obligation to ‘love the country’, a slogan that is generally interpreted as synonymous with ‘loving the Communist Party’. The Chinese government has rejected this interpretation.

But the attempt to increase control has led to a backlash from many Hong Kongers. Not only were many lawyers outraged about the white paper but its timing played into the hands of democracy activists — activists who could mobilise an unexpectedly high number of people to participate in a referendum on which reform proposal the democratic camp should endorse. In the end, the Chinese government did not even consider the most conservative reform proposal and opted for a reform plan that would deny Hong Kongers any choice in the election for chief executive. It laid bare the unwillingness of the Chinese government to negotiate with anyone, not even moderates.

The Communist Party is worried that any form of popular mandate could make the chief executive in Hong Kong more powerful than the unelected leaders in China. Without any compromise from the Chinese side, the present reform proposal is likely to fail in the Legislative Council, where it needs the support of two-thirds of the legislators. This would mean securing some support from the pan-democracy camp now united in opposition to the proposal.

At the same time, democracy activists have called on their supporters to follow up on their promise to use disobedience and block the central district later this year. Whether or not this eventuates, it is unlikely to have any major effect on the Chinese government — an unfortunate reality that even most activists acknowledge. At this point, it is unclear what the Hong Kong government will do about the protests. Though a violent crackdown seems unlikely — if not impossible — activists are already preparing for that eventuality.

It is more than likely that Hong Kong will continue to be governed in its present form until at least 2047, when the ‘one-country, two-systems’ policy is set to end. But even then, without significant institutional reforms on the mainland, Hong Kong’s separate system holds more benefits for China than if it were to be fully integrated. As Foreign Policy recently reported, one Guangzhou-based research firm has argued that if the former British colony were to become just another mainland city, it would be reduced to second-tier status. This is because Hong Kong’s special status is a critical reason for its economic prosperity. The independent legal system and the free exchange of information provide the basis for both the financial system and the property market.

Most importantly, the aspects that make Hong Kong a developed economy also provide an important rationale for many companies aiming to locate their regional headquarters in Asia. If this advantage were to be lost, these companies would be likely to relocate to other places such as Singapore. In light of this, the Chinese government may want to maintain Hong Kong’s advantage.

Stephan Ortmann is a Visiting Assistant Professor at the Department of Asian and International Studies, City University of Hong Kong.

Categories: Forum

The ghost of historical revisionism in contemporary Japan

East Asia Forum - Wed, 09/24/2014 - 05:00

Author: Koichi Nakano, Sophia University

The politics of historical memory is a key factor shaping the international relations of East Asia today. Controversy surrounding the Yasukuni Shrine and the ‘comfort women’ (sex slaves) issue has had far-reaching foreign policy implications for Japan’s relations with its East Asian neighbours. From the mid-1980s to the mid-1990s Japan pursued a liberal internationalist orientation which included significant political efforts to reach settlements (if not solutions) on historical issues with China and South Korea.

When Prime Minister Nakasone Yasuhiro made an official visit to Yasukuni Shrine on 15 August 1985, China lodged a strong protest, and a full-blown diplomatic dispute ensued. Nakasone concluded at the time that, for the sake of Japan’s ambition for a greater role in world affairs, harmonious relations with key neighbours were essential. Nakasone decided to stop visits to Yasukuni Shrine at this juncture, despite his visit representing the culmination of a concerted effort by Japanese conservatives in the postwar period to change the constitutional interpretation of the separation of religion and state to enable the prime minister’s official visit to the shrine. Nakasone and his associates tried to de-enshrine the 14 Class-A war criminals from Yasukuni, but the shrine authorities rejected the idea as out of hand. Thus, from the mid-1980s, a de facto settlement of the Yasukuni Shrine emerged: officially or unofficially, the Japanese prime minister would not visit the shrine.

The trajectory of the ‘comfort women’ issue was slower to unfold, but when it finally came to the fore in the early 1990s, the Japanese government attempted to settle the issue by delivering the 1993 Kono Statement. It acknowledged state involvement as well as coercion had underpinned the system of military brothels, and offered apologies to the victims. Though ultimately unsuccessful in resolving the issue, the Asian Women’s Fund was set up in 1995. The Murayama Statement, apologising for the suffering Japan had caused during the war, was also issued — coinciding with the 50th anniversary of the end of the war. Japanese history textbooks also started to include references to ‘comfort women’ in the mid-1990s.

As the bubble economy inflated Japan’s economic might and boosted its self-confidence, the country’s ruling elites were keen to lift the postwar ban on playing an active security role overseas. It was in this context that even such nationalists as Nakasone accepted that securing the understanding, if not active support, of Japan’s neighbours and former victims — most notably China and South Korea — was a precondition to the realisation of their new political ambitions on the world scene.

But Japan’s liberal internationalist period was followed by a revisionist backlash starting in the mid-1990s which challenged and undermined the fragile compromise with Japan’s neighbours. A new cohort of politicians came to power who were born after World War II and building their political careers in the post-Cold War era. Under their leadership a nationalist and revisionist orientation gained prominence. The current prime minister, Shinzo Abe, was a standard-bearer of this new creed of politicians who challenged the postwar conventions and taboos and questioned existing settlements and accommodations with Japan’s neighbours.

Junichiro Koizumi (prime minister from 2001-06) destroyed the Nakasone settlement of the Yasukuni issue with his yearly visits to the shrine throughout his time in office. Abe, who replaced Koizumi in September 2006, refrained from following in his footsteps, but later expressed strong regrets that he did not visit the shrine during his first stint as prime minister and made an abrupt visit to Yasukuni on 26 December 2013. These moves encouraged the right-wing to turn up the volume, and a backlash started again against the Kono Statement. Abe to date has made various moves to undermine the legitimacy and credibility of the Kono Statement, while superficially upholding it as the official government position.

The liberal internationalist orientation towards resolution now seems absent among the current Liberal Democratic Party (LDP) and, as such, in Japanese politics as a whole. The competitive two-party system that was promised when the first-past-the-post system was introduced in 1994 has resulted in a new one-party dominance. It is different from the old one-party dominance in that there is no established opposition party to speak of this time, thereby allowing the LDP to indulge in internationally damaging revisionism in the absence of any check from the pacifist left. In view of a serious lack of checks, the ghost of historical revisionism is likely to continue to haunt East Asia and jeopardise a cool-headed approach to diplomacy and security.

Koichi Nakano is a professor of political science at Sophia University in Tokyo.

A version of this article was first published here on The Asan Forum.

Categories: Forum

Revitalising India’s manufacturing industry

East Asia Forum - Tue, 09/23/2014 - 17:10

Authors: Anwarul Hoda and Durgesh Kumar Rai, ICRIER

Increasing the GDP growth rate will be a major task for India’s new government. GDP growth will be critical for eradicating poverty and improving the living standards of India’s population. The economy also faces the daunting challenge of providing employment opportunities to about a million people being added to the job market every month. Rapid expansion of the industrial base of the country through labour intensive manufacturing appears to be the perfect solution to the country’s problems.

To make progress on manufacturing, India must seize the opportunity provided by international production sharing networks, which have propelled other emerging economies of Asia forward. Today, the share of manufacturing in the GDPs of China, Thailand and Malaysia is in the range of 25–35 per cent, while in India it is 15 per cent. One advantage of the production network strategy is that it can deliver growth in manufacturing relatively speedily.

One of the main reasons for India being an outlier in the development of international production networks is the low stock of foreign direct investment (FDI) in India’s manufacturing sector. After economic reforms India has shed its past ambivalent attitude towards FDI, but shortcomings in the investment environment still deter foreign investors. It is imperative that these are addressed.

International production sharing involves large volumes of exports and imports in parts and components and, in some cases, these traverse borders several times. The logistics cost thus becomes the most important element of a country’s investment environment for manufacturing through international production sharing. And, here, India has been found lacking. It needs to improve its gateway infrastructure by substantially scaling up the capacity of its ports, deepening drafts in harbours and channels, and improving the rail and road connectivity of ports. Equally important, it must improve customs procedures and follow international best practices with respect to the electronic data interchange, risk management system and accredited clients program.

Internal transport infrastructure also needs attention. Traffic congestion in saturated corridors slows freight movement by the railways and affects its reliability. Dedicated freight corridors are being constructed in two major segments, but more needs to be done to improve the situation countrywide. The road network is not world class, and access-controlled expressways are virtually absent.

Another major infrastructure deficiency is the lack of assurance regarding uninterrupted supply of high quality power. Governance is an important issue here, and power theft is sometimes disguised as transmission and distribution losses. The inadequacy of fuel availability for generation has emerged as a critical factor affecting power supply in the country.

The lack of affordable land is another impediment. The recently enacted legislation on acquisition and rehabilitation has compounded the problem by raising the price of land steeply and putting formidable procedural hurdles in the way of land acquisition for industrial purposes. Prior consent to land acquisition has to be obtained from 80 per cent of affected families (including agricultural labourers) and a social impact assessment has to be carried out. At a minimum, these hurdles need to be alleviated. The Government of India also needs to move quickly towards establishing national manufacturing zones, as announced in the national manufacturing policy, so that investors can get speedy access to developed land with the internal infrastructure already provided.

Labour laws, too, need a serious review. The laws that make downsizing difficult are not in tune with the globalised world of manufacturing. The emphasis of laws on contract labour should be on regulation rather than abolition: employment on fixed term contracts should be specifically allowed. Trade union legislation needs to be revamped in order to improve the process of collective bargaining and promote harmony in industrial relations.

To compete with East Asian countries for FDI inflows, corporate tax levels need to be lowered to 25 per cent. Even more important is the need to impart stability to the taxation regime, renounce retrospective changes, which have vitiated the taxation environment, and bring about greater transparency in implementation — particularly on transfer pricing.

Multiple taxes, including taxes on inter-state transactions, make India a fragmented market and impede the free flow of goods within the country. Lack of a simple tax structure with one or two uniform tax rates increases the cost of compliance by businesses and is a drag on efficiency. A goods and services tax, which is already in the pipeline, needs to be introduced as soon as possible.

Improvement in the investment environment will stimulate investment in manufacturing not only by multinational corporations but by domestic enterprises as well. International production networks will gain ground in India through off-shoring as well as outsourcing.

Revitalising the manufacturing sector will be critical for the Indian government in ensuring GDP growth and a better future for the nation.

Anwarul Hoda and Durgesh Kumar Rai are staff members of the Indian Council for Research on International Economic Relations (ICRIER) in New Delhi. The views expressed here are not necessarily those of ICRIER.

Categories: Forum

Energy market reform needed as China heads for national emissions trading

East Asia Forum - Tue, 09/23/2014 - 05:00

Author: Frank Jotzo, ANU

China is shifting up a gear in its drive towards national emissions trading. Yet, for carbon pricing to be effective, market reform in China’s energy sector will be needed — a big task that will bring benefits not only for the environment but also to the quality of China’s economic growth.

China’s National Development and Reform Commission recently announced that a national emissions trading scheme would start as early as 2016. This surprised many experts who had expected a later start, perhaps around 2020.

This was followed up last week by an announcement that China’s national carbon market will encompass three to four billion tonnes of carbon dioxide by 2020 — twice the size of the EU emissions trading scheme — and that it would expand after 2020.

The statement did not only give numbers for the likely extent of the scheme but also an implicit expected price range: the market would be worth between RMB60–400 billion (about US$10–65 trillion). This implies an average price of RMB20–100, or between US$4–17, per tonne of carbon dioxide at the current exchange rate. So it could be as much as double the current EU trading price.

Any given carbon price can potentially have a much larger effect in the Chinese economy than in Europe or other Western countries. That is because the emissions intensity — the ratio of carbon dioxide to GDP — of China’s economy is three to seven times higher than the emissions intensity of Europe (depending on whether GDP is measured in terms of purchasing power parity or exchange rates).

But an emissions trading scheme will be effective only if markets are allowed to work. If companies can save money and increase profits by cutting emissions, they will have effective incentives to shift to lower carbon energy and to further improve their energy efficiency.

On the other hand, if prices are locked in by regulation, if investments are decided more on political objectives than future earnings potential, and if operation of industrial installations is guided tightly by regulations, then a carbon price will not do much to cut emissions.

Pervasive government direction is still the norm in China’s energy sector, especially in the power sector where much of China’s emissions savings could come from. Electricity prices are fixed, power plants have government-determined annual running times, and investments in new power plants by state owned enterprises are not necessarily optimised for lowest cost and highest returns.

This spells the need for energy sector reform to make emissions trading — or a carbon tax — work properly. Such reforms are right in line with the Chinese leadership’s stated ambition to allow the market to play a more central role in determining economic decisions. And they do not need to be completed before a price tag is put on emissions, the two can proceed in parallel.

Markets will show up what is economical and what is not in China’s energy sector. The benefits are likely to be large indeed. An energy sector that reacts nimbly to changes in prices will find enormous opportunities to save energy and to make better use of the ample investment funding that is available in China.

And most of the changes will benefit the environment. It is a case of less cost and less pollution for the same amount of energy produced, which in turn can power more economic output.

Putting a price tag on emissions could also help improve the quality of China’s economic growth. As Teng Fei of Tsinghua University and I have argued, the benefits of shifting China’s economy to ‘greener’ growth are often ignored in economic analyses.

One benefit is more predictable energy system costs when nuclear power or more renewables are used instead of coal, oil and gas. Another is to help re-orient the economy towards a greater share of high value-added manufacturing and services. A third is the potential for economy-wide productivity gains resulting from greater energy productivity.

Of course, the mere existence of large economic and societal gains from market reform does not guarantee such reform is implemented. The experience in many countries — developed and developing — has been that powerful vested interests or popular opposition stand in the way of energy sector reform, whether to cut carbon emissions or other objectives. Changing energy prices, and changing regulatory and ownership structures can have large effects on established economic interests.

But, despite the difficulties, the present Chinese leadership seems determined to make things happen. Cutting carbon emissions is clearly high on the political agenda. The fact that the central government is pushing hard for a national emissions trading scheme when the seven pilot trading schemes have been in operation for only about a year is a sign of that determination.

Sweeping change could come quickly.

Frank Jotzo is Director of the Centre for Climate Economics and Policy (CCEP), Crawford School of Public Policy, the Australian National University and receives funding from the Australian Research Council.

CCEP is involved in a collaborative research program on China’s climate and energy policy with Tsinghua University. The program is partly funded by an Australian government grant.

Categories: Forum

Why history is a problem for Park Geun-hye in confronting Japan

East Asia Forum - Mon, 09/22/2014 - 17:00

Author: Peter McGill, London

Relations between South Korea and Japan have deteriorated significantly in recent years. South Korean President Park Geun-hye has refused to hold any bilateral meetings with her Japanese counterpart Prime Minister Shinzo Abe. Park lays the blame for poor Japan–ROK relations squarely on Abe for his historical revisionism.

In particular, Park has accused Abe of undermining an acknowledgement (the 1993 Kono statement) and apology (the 1995 Murayama Apology) issued by previous Japanese governments for Japan’s wartime system of military brothels where many ‘comfort women’ worked as sex slaves.

In her speech to mark the anniversary of Korea’s liberation from colonial rule on 15 August 1945, Park called upon ‘Japan’s leaders to take a correct view of history and especially to take proactive measures acceptable to the comfort women victims of the Japanese imperial military while they are still alive’.

Outside of Japan, Park’s standpoint that Abe is responsible for bad Japan–ROK relations has been widely accepted. Her government has shown remarkable success in occupying the moral high ground and in presenting an image of national unity.

In reality, history is as much a political battleground in South Korea as it is in Japan. The notion that there is a ‘correct view of history’ would strike many South Korean intellectuals as absurd.

Park is under fire at home for seeking to reinstate censorship of textbooks and for promoting a school history book that critics say paints too rosy a picture of Japanese colonialism as well as the dictatorial regimes that followed.

In Japan there is widespread suspicion of Park’s motives. This may partly be a defensive reaction stemming from injured Japanese pride. The contrasting fortunes of Japan and South Korea since the Asian financial crisis of 1997–98 — the swift recovery and dynamism of South Korea’s economy and companies like Samsung, compared to Japan’s long stagnation and the decline of its electronic giants — have stirred resentments.

But Japanese are right to point to the domestic advantages for Park of attacking Abe. Just as assailing ‘Japanese militarism’ is useful to Chinese President Xi Jinping in diverting attention from failings of the Chinese Communist Party, Japan provides an easy emotional distraction from Park’s own vulnerabilities.

But the reputation of Park’s late father, Park Chung-hee, who seized power in a military coup in 1961 and was assassinated in 1979, is a mixed blessing.

To his millions of admirers, Park Chung-hee was a hero who strove tirelessly to build the prosperity enjoyed by South Koreans today. To his detractors, Park Chung-hee is remembered as a dictator who suppressed all opposition. Just as damaging to his daughter’s political inheritance was his affinity to Japan, a nation he greatly admired.

In 1940 Park Chung-hee enrolled at the Japanese military academy in Manchukuo, the Japanese puppet state in Manchuria, and after graduation served as a lieutenant in Japan’s Kwantung Army, allegedly helping to hunt down partisans fighting for Korean independence.

Manchukuo’s development from scratch of heavy industry to supply the needs of the Kwantung Army, using a novel state-led system of planning and control, served as a blueprint for economic planning in South Korea during the 1960s and 1970s. Most senior bureaucrats who served under Park Chung-hee had previously worked for the Japanese during the 1910–1945 colonial period.

The chaebol family-controlled conglomerates that Park Chung-hee fostered, such as Samsung, Hyundai and Daewoo, were also modelled on Japan’s pre-war zaibatsu (business conglomerates). ‘The miracle on the Han River’ (South Korea’s post-war economic boom) therefore came after an earlier test bed of Japanese militarism.

In a further twist, the key bureaucrat behind Manchukuo’s industrial development was Abe’s maternal grandfather, Nobusuke Kishi, who was subsequently Hideki Tojo’s right-hand man for commerce, industry and munitions. Imprisoned from 1945 to 1948 as a ‘Class A’ war crimes suspect, Kishi later became prime minister and a revered role model for Abe.

Park Chung-hee’s interest in Japan extended to its modernising revolution in the 19th Century. He once ordered his ambassador to Tokyo to send him every book he could find on the 1868 Meiji Restoration.

Such links to Japanese militarism became politically toxic in South Korea with the advent of democracy at the end of the 1980s.

One of the more theatrical acts of Kim Young-sam’s presidency (1993–98) was the demolition of the dome of the old Japanese General Government building on 15 August 1995 — the 50th anniversary of liberation. Japan had built its colonial capital right in front of the Korean royal palace and Kim made great play out of obliterating this vestige of colonialism.

Bitterness towards Japan was strongest during the 2003–2008 presidency of Roh Moo-hyun, a former labour and human rights lawyer. Under a special law enacted in 2005, an investigative commission listed 452 Koreans who had collaborated with Japanese colonisation. In 2007 the property of descendants of nine of those collaborators was confiscated. The crackdown was highly divisive — most of South Korea’s social elite can trace their family privileges and fortunes back to cooperation with Japanese colonisers.

South Korean NGOs compiled their own lists of collaborators. A directory published in 2008 by the Institute for Research into Collaborationist Activities named 4776 individuals, including Park Chung-hee.

Under Park Geun-hye the word collaborator has again become taboo in ruling circles, and government websites related to the 2005 law have been removed. A once vigorous campaign to seek compensation for Korean forced labourers at Mitsubishi and other zaibatsu during the Pacific War has also been wound down and relegated to an obscure corner of the prime minister’s office.

Peter McGill is a journalist specialising in East Asia, where he was based for 20 years.

Categories: Forum

Why Thailand must decentralise

East Asia Forum - Mon, 09/22/2014 - 05:00

Author: Peter Warr, ANU

Bangkok’s iconic Democracy Monument is currently fenced off. A large, hand-written sign reads ‘closed for renovation’. In April the monument was damaged by shots fired at protesters demonstrating against the Pheu Thai government of Yingluck Shinawatra. At least three protesters died.

Ironically, Thai democracy is itself ‘closed for renovation’. On 22 May a military coup claimed power, for the 12th time since the 1930s. Yet again, a familiar cycle has been acted out: a military government gives way to a democratic opening, there are violent protests against the elected government, the military stages a coup to ‘restore order’, an authoritarian military government promises ‘reform’ and a later return to democracy, and so on.

Thai democracy is seemingly unstable, but why?

The new military junta’s program of ‘reform’ is still unclear, but the central focus is apparently on reducing corruption. Successive Thai governments have been known for their corruption and protests against the allegedly high level of corruption within the Pheu Thai government was a focus for at least some of the popular movement against it. Corruption wastes public resources, contributes to inequality and is an important source of public discontent. Reducing it is clearly desirable. But although corruption is a problem, it is not the problem. The focus on this one issue misses a key feature of Thailand’s political instability — its regional nature.

The Pheu Thai party of Thaksin Shinawatra and his followers derives its strength from the rural-based North and Northeast regions of the country, where it has won huge majorities in every election this century. Pheu Thai has never won an election in Bangkok and its support in the South is only slight, where the opposition Democrat Party wins most elections and minor parties win the rest. But the population and parliamentary representation of the North and Northeast regions are so large that Pheu Thai’s popularity there is sufficient to capture government at the national level.

This regional divide has been acted out in street protests in Bangkok and elsewhere. During the Democrat Party government led by Abhisit Vejjajiva, from 2008 to 2011, protests by the ‘Red Shirt’ supporters of Pheu Thai were primarily people who either normally resided in the North or Northeast, or whose families had recently relocated from there. During the more recent anti-Pheu Thai protests, led by former Democrat Party deputy prime minister and leader of the People’s Democratic Reform Committee Suthep Thaugsuban, the demonstrators were overwhelmingly from Bangkok and the South. Regional differences lie at the heart of Thailand’s political conflict.

For countries of its size, the Thai state is one of the most centralised in the world. There are 76 provinces and the governors of all but one — Bangkok — are appointed by the central government’s Ministry of Interior. The provincial government’s powers and revenues are modest and derive from the central government. Beneath the provincial level, local governments are elected, but their meager resources are directly dependent on the central government.

Thailand’s major problem is the incompatibility of a regionally divided populace and a highly centralised government. It is not exaggerating too much to say that attaining government at the national level is a winner-takes-all victory for either the North-Northeast coalition or for Bangkok and the South. Only one long-term solution is seemingly possible — political decentralisation to empower and democratise regional governments. Thailand needs more democracy, not less.

At the end of the 20th century, Indonesia was hardly a promising candidate for a successful democracy. Decades of highly centralised, authoritarian government under President Soeharto had ended with collapse of the government under violent street protests. But something remarkable subsequently happened. A radical decentralisation was implemented. Some say it was too radical, but Indonesia’s democracy is now the success story of Southeast Asia. The country has now experienced a most unusual event: the loser in a presidential election has grudgingly accepted defeat and walked away.

Indonesia’s decentralisation did not remove corruption. It probably increased it, as checks and balances have been undermined by the huge task of monitoring disbursement of funds at the regional level. But the contest for control of the central government is no longer the sole political struggle. Regions not close to the central government’s ruling elite can still exercise a substantial degree of autonomy, with considerable resources at their disposal. This is not so in Thailand.

Significant decentralisation is not included in the Thai military government’s understanding of ‘reform’. The policy package being proposed apparently contains no such measures. It may be too much to hope that a group of command-and-control generals could implement a decentralisation of power, even if they wanted to. They are doing the opposite. The budget allocated to local governments has been halved, on the grounds that local government is too corrupt.

The prognosis is not good. When the generals relinquish power and restore electoral democracy, as they must, more of the same seems probable: regionally-based conflict that an overly centralised system of government cannot resolve, except through repression.

Peter Warr is John Crawford Professor of Agricultural Economics, emeritus in the Arndt-Corden Department of Economics, Crawford School of Economics and Government and Executive Director of the National Thai Studies Centre at ANU.

Categories: Forum
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